Never argue with a “true believer!” January 7, 2010Posted by shaferfinancial in Finance.
Tags: mutual fund investing, psychological methods of propaganda
On the radio this morning I heard a commercial that started with this: “Mortgages ought to be illegal.” With an opening line like that it caught my attention. The commercial went on to describe the thousands of dollars that banks make on the typical mortgage and mentioned $250K in interest paid on a 30 year $200K mortgage [sounds like a pretty high interest rate on that one]. You were instructed to call for their DVD which would describe how to “turn debt into wealth” and pay off your mortgage in a short period of time. Another voice came on and stated he WAS going to pay off his 30 year mortgage in 2 1/2 years. Of course you did need to make any more money than you do now to accomplish this miraculous feat, just sign up for their program.
Psychologically, this advertisement was pretty tight. If you agreed with the three main premises:
Banks are ripping you off by charging interest;
Debt is bad; and
There is a secret strategy that banks don’t want you to know about to eliminate debt.
The psychological trick is this. You make a series [usually three] of obviously true statements [doesn’t matter if they are true or not, only that the receiver of this communication believes them to be true], and the logical/conscious part of your brain drops its guard to the point it allows whatever comes next to flow through to the unconscious as true too. Then you ask people to act upon the last statement, which is this case was that you can eliminate your mortgage debt in 2 and 1/2 years if you call for the free DVD. Once a person believes [in the unconscious] that you can eliminate debt rapidly without increasing your income, then they are ripe for selling them your program.
This method of psychologically attuned sales/marketing is of interest to us all because we often see it used. And the great thing about this strategy is that once it is set, the part of the brain where emotions sit holds on to the item in the face of all logical attempts to prove it false. This is where you see folks hanging onto ideas despite their obvious failure.
Let me try this one for you:
Math has proven that stocks give you the best long term performance, you can increase your return by purchasing monthly, and saving/investing a small amount monthly will turn you into a millionaire in the future;
No one can pick individual stocks and beat the market over a long period of time; and
Financial companies are ripping you off with the fees and transactions costs.
Your best strategy is to buy indexed mutual funds from Vanguard with their low expenses based on mathematically derived asset allocation strategy.
Now if you believe those three statements are true [and they are not totally true], then given the opportunity you would institute a strategy of dollar cost averaging into low cost indexed mutual funds, right. And if someone were to point out that the strategy has failed over the last 20 years you would most probably not believe them. And further if people pointed out the problems with the three statements, you argue with them till the cows come home, wouldn’t you? But if you don’t take those three statements as undeniably true, then you might be open to other strategies!
Those Bogle books [Common Sense on Mutual Funds, etc.] were nice pieces of psychological based propaganda! Very astutely written and tightly attuned to the psychological rules we now understand with the ultimate goal in getting people to buy Vanguard Mutual Funds. Of course Vanguard is the second largest mutual fund company now as a result.
Now you understand how it works. And why arguing with “true believers” is usually a futile act!